Ok, we have some action here..
Asia took a big tumble over night with the hangseng the big loser but all indexes falling nicely. Once again it was the end of the session that saw the big selling which is ominous i must say. The ‘amateurs open the day, the professionals end the day’ is the saying.. who knows but a strong sell at the end of the day is never a good omen. This is certain.
Europe has followed asia down. The levels i mentioned yesterday are already starting to come into play out of hours on the ym, es etc.. Oil, as predicted has seen that weakness and is looking once again for those channel trend line levels. (you have the charts, ill update the short term). FX wise i expected more euro weakness due to the technical issues i went through.. she is conforming to the technical script and is looking for those levels around 1.375 to the usd, etc.
More interestingly, do we have a battle yet in the equity markets..? The answer im afraid is a very resounding – NO.. We don’t.. the volume yesterday was not impressive. The price action lacked meaning.. ok the point move was impressive but it was achieved by sedate price action.. its as if the indexes were on Valium. It was very hard to trade the main, broad indexes yesterday and this is always an excellent indicator that participants are fully in control of events and their sanity and we are unlikely to get ‘real’ moves until this ‘sanity’ deserts them..
Today, on this basis, will be interesting.. We have a big move in Asia and China very much losing the battle vs inflation, her trade nos, etc.. Can Asia pull this market down? Its an interesting one which, imo, will only occur when participants are kicked very hard to accept that this is even possible.
For technical traders the price action has hit 42% retracement of the near vertical run up last 2 weeks. This is an acceptable retrace and from 12350 ym sept the tug of war should start between the longs and shorts. The longs don’t want to see a complete reversal of the last 2 weeks retrace of, however confident they are feeling. Participants on both sides have some positions but the momentum is very much still with the longs in spite of the recent break of the 1 yr uptrend channel trend lines.
FX wise – the dx breaking her down trend is not assisting the longs of course. Italy is the latest news story doing the rounds. Ireland will have problems again very soon i’m sure. The Asians must be wondering when the debt disease that infected the developed world will ever end. In truth its simply getting worse especially in the euro zone as the ecb refuses to print and instead expands money supply through debt on debt through new (capital lite) borrowing entities like the EFSF that is guaranteed by Euro states.. This is printing by another name.. at least printing carries no interest, note! So although the euro model is not ‘printing’ which is good the solution of more debt is possibly even worse as this debt will eventually have to be monetized one way or another.
Given the above perhaps i should be more bearish than i am on the euro.. but there is a buyer.. you can see him coming forward quite regularly in the price action. Asia does not want a euro collapse so i would look for a level of 1.37 or so and take it, especially on a spike.. When the time comes it will be crucial to see what else is occurring in terms of correlating instruments, etc.
I’m watching, and have been short gbp vs the usd from 1.615 or so.. the trade is running.. i want a trend.. Sterling is in trouble.. no question.. remember i said i thought the forward party of the circus were setting up camp gbp vs usd.. they are indeed settled in, have a position and have no intension of being rolled over.. So, short term we may see some volatility on sterling.. If/when she breaks, she may break very hard as the circus main party comes to the trade.. lets watch this.. it will be very informative, interesting and hopefully lucrative. Fundamentally i can see an arguement that says safe heaven from euro.. but in reality at such severe negative rates.. (remember sterling has one of the highest inflation rates in the g10).. given this backdrop its hard for sterling to be a safe heaven.. very hard.. The concern is the arrival of the circus.. King is walking a very dangerous line.. imo..any mention of more qe and we will witness a massive sterling devaluation.
Commodity currencies are struggling.. i bought more auds on friday late to hold for the weekend.. i didnt like the look of her yesterday am so i lost them at the same price i paid.. i then lost a few more vs jpy.. i added some vs gbp.. I lost euros vs jpy on friday.. and very glad i did too.. jpy is once again maintaining her ‘safe heaven’ track record. This is greatly due to one man’s efforts. The BOJ govenor.. he refuses to take an inflation target. He writes on monetary issues and is a very combative person.. Japan’s government continues to spend more than she makes and her debts pile up.. japan is still in deflation. Japanese banks have remained a horrid stock. Japan is running out of runway though.. the interest on her debts mounts as her population ages and start to draw their pensions. The government will go bankrupt in the next few years as she becomes unable to sell her bonds to her domestic people.. the japanese yield is already at zero.. the banks cannot buy safe in the knowledge their assets cannot go down.. If the yield curve rises just a little the assets could become worthless.. Its a catch22 that will be resolved with the BOJ govenor being thrown out of office.. when we cannot know.. it is an event that must occur.. Options calls the only way to play this at present as simply no price indicators to give us any indication of the circus being here yet other than aud and cad forming higher lows on market weakness vs the jpy.
Commodity currencies vs the usd are fine at present.. they are weakening a little but not much thus far.. i expect more weakness in spite of the yield differential.. faber is worried on china and therefore australia.. he sites the aud housing market as being over heated.. the last quarters mortgage nos were released for australia last week.. the nos saw approx a 5% growth in loans.. This was strong.. I expect this to fuel a last consumer binge in Australia in fact.. I expect pretty good nos from Australia for the next 3 months due to this loan growth.. but i don’t expect this to sustain unless china and the usd remain strong which is looking unlikely.
Equities specifics.. i got out of some copper cos i had added on the weakness and banked.. inv & freeport.. i like them both but i do think ill be able to buy at cheaper prices. The yields are low. Watch the mortgage reits in the US.. IMO.. NLY, ANH and MFA are my picks.. i hold all.. mfa has yet to pay her quarterly from memory.. these cos borrow at the short end to buy at the long end they then pay out all the profits on operations due to them being reits.. The securities they buy are government guaranteed. They cannot lose whilst short term interest rates remain low.. They will get killed eventually therefore but for the next 6 months or so i like them. The yields are enormous at present circa 12 to 14% etc.. As an outside bet.. i like Portugal telecom listed in the states.. The yield is immense. Over 50% of profits from South America. They will get killed in Portugal from regulation no doubt but the s.american operations will fill the void, imo and the yield is immense. Ill pick up more if/when i see the euro a little weaker and on renewed Portugal concerns. Not for widows and orphans..
Enough for now.. I’m still playing catch up post wise as the gap in posting for a week or so..
As a side comment, i hope people kept a few hedges in place.. easy to get caught there especially on a hard retrace-ment set of trading rules.. If you did get caught consider applying some rules to take account of these narrow, low volume trends.. we can expand on this in the forum..
All the very best
Rich
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